Can we reduce invisible unemployment?

We’ve seen great improvement in reducing unemployment in both the nation and North Carolina in recent years. Many economists think the most frequently cited jobless rate could fall under four percent this year. Indeed, there is already talk of the labor market being at “full employment”, and an increasing number of companies are now citing problems of finding qualified workers as their biggest problem.

But there’s a type of unemployment that’s missed in the commonly used jobless rates we see released each month. I call it “invisible unemployment”. Invisible unemployment is composed of individuals of working age (25 to 54) who aren’t working and – this is the key – are not actively looking for work. They’re not included in the most used unemployment numbers because they don’t meet the requirement for inclusion in these numbers. Specifically they are not seeking work by visiting potential employers or sending out resumes.

Stated another way, the invisible unemployed are working-age individuals who have dropped out of the labor force.

Studies show the number of the invisible unemployed fluctuates with the business cycle – rising during recessions but falling when the economy expands, but still the number has trended upward in recent decades. Among men, the invisible unemployed as a percent of the labor force was under four percent in the 1950s but has risen to over 10 percent today.

These rates put the current number of invisible unemployment for men at near 7 million in the country and 230,000 in North Carolina.

What are the reasons behind the increase in invisible unemployment? Clearly the rise in drug addictions – particularly to painkillers like opioids – has been a big contributor. Half of the men among the invisible unemployed are estimated to have painkiller addictions that make them unemployable.

Another reason is the decline in traditional manufacturing jobs. Traditional factory work offered reasonable pay to individuals without a college degree and who were capable of physically challenging work. Since its peak in 1980, manufacturing employment is down by one-third in the nation and by almost half in North Carolina. The manufacturing work that does remain increasingly requires education beyond high school, which precludes individuals whose focus is outside of academics.

Perhaps the biggest change from the past is the lack of mobility among the invisible unemployed. In earlier times unemployed persons would move to where they could get work. We’ve certainly seen this in North Carolina in the last forty years as people have relocated from small towns and rural areas to the rapidly expanding metropolitan areas like Charlotte and the Triangle.

Yet the fast growth in the big metros has caused those areas to become more expensive, particularly for housing. For many of the invisible unemployed, this means their economic situation is better staying where they are. That is, living with even modest public support, or from the charity of friends and family, in a low cost-of-living area is better than living in a high cost-of-living region with a job. As a result, the migration of the invisible unemployed to the job-rich metro areas has declined in recent years.

So what’s the solution if we want to reduce the ranks of the invisible unemployed? There appear to be two options. One is to bring more jobs to counties and towns where the invisible unemployed live. The other is to work on providing more reasonable living costs – mainly in terms of housing – in the big metropolitan areas so the invisible unemployed can move there and find jobs.

For a long time North Carolina has been trying both approaches. State and local governments have an assortment of incentives packages and other inducements designed to attract businesses to high unemployment areas. However, the results have been mixed. Many large cities have also made increasing the supply of affordable housing a priority.

But today there is reason for heightened optimism as private firms are beginning to address the problem. As the fast growing big metros run out of available workers, there is now more incentive for new and expanding firms to consider locations in smaller towns and regions. In fact, we’ve recently seen some major job announcements in North Carolina in these specific geographic areas.

There have also been national stories about private firms in tight urban labor markets actively seeking out and recruiting individuals among the invisible unemployed.mThe firms help those with addictions reduce and ultimately end their dependence, and then the firms train the individuals for needed skills. The result is a win-win – the businesses get trained workers, and the workers get a paycheck and freedom from addictions.

Both these approaches rely on a faster growing economy driving unemployment rates so low that companies become very motivated to find available labor. Therefore, this is another benefit of pushing economic growth into a higher gear.

For many, unemployment has become a way of life. Ensuring a job for everyone who can work and wants to work is a laudable – but also stubborn and sticky – goal. However, today we may be in the “sweet spot” of the economic cycle where it is more achievable than at any time in recent memory. Can we keep the progress going? You decide.

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.